Economic & Market Outlook – May 2023
The year 2023 is expected to be a challenging one for the global economy and financial markets, as the world faces multiple headwinds such as inflation, monetary policy tightening, geopolitical tensions and the ongoing impact of the COVID-19 pandemic. However, there are also some signs of hope and resilience, especially as we near the second half of the year, inflation is predicted to ease, central banks hopefully pause their rate hikes and China reopens its economy after lifting its strict COVID-19 restrictions. I have summarised a brief overview of the key economic factors and market trends for the UK, US and China in 2023.
UK
The UK economy is forecast to grow by 1.4% in 2023, down from 2.6% in 2022, according to the IMF. The main drivers of growth are expected to be consumer spending, which is supported by high savings and rising wages, and business investment, which is boosted by strong external demand and improved confidence.
However, the UK also faces several challenges, such as supply chain disruptions, labour shortages, higher energy costs and rising interest rates.
The Bank of England (BoE) has now raised its base rate 12 consecutive times to its current level of 4.5% which is an increase of 1% since the end of 2022. It is possible we haven’t seen the end of this yet with inflation still above 10%.
The UK stock market is likely to be volatile in 2023, as investors weigh the risks and opportunities of the post-Brexit environment.
US
The US economy is forecast to grow by 1% in 2023, down from 5.5% in 2022, according to the IMF. The US economy has faced a slowdown in the first half of 2023, as the effects of fiscal stimulus fade, inflation remains high (although much lower than the UK) and monetary policy continues to tighten.
The Federal Reserve (Fed) has raised its federal funds rate by 1.25% since the end of 2022. With inflation easing to a more respectable level, could this have been the last hike?
If this were the case we would expect to see the US economy rebound in the second half of 2023, as inflation continues to ease, consumer confidence improves and central banks signal a pause in their rate hikes. However, a potential recession could slow matters.
China
The Chinese economy is forecast to grow by 4% in 2023, up from 2.8% in 2022, according to the IMF. It is expected to benefit from the reopening of its domestic and international markets after Beijing lifted its strict COVID-19 restrictions in January 2023.
The government is likely to provide more fiscal and monetary stimulus to support growth and stability amid external uncertainties and domestic challenges such as debt risks and environmental issues.
The Chinese stock market is expected to perform well in 2023, as investors regain confidence in China’s growth prospects and policy support. The Shanghai Composite index is projected to end 2023 about 20% higher than its current level. It is worth noting though, their economy has not had a recovery since Covid-19 which we saw within developed markets.
Conclusion
The year 2023 will be a difficult one for the global economy and financial markets, but not without some silver linings. Investors should be prepared for volatility and uncertainty in the first half of the year, but also look for opportunities and recovery in the second half of the year. The UK, US and China will face different challenges and opportunities in their economic and market outlooks for 2023.
We will therefore continue to work with you to assess your objectives and ensure you have a well-balanced portfolio that matches your attitude to risk and capacity for loss. We will consider what impact the current stage in the economic cycle has on your exposure to various assets. Remember, volatility can be partially mitigated by diversifying investments suitably across a broad range of asset classes.
For clarification of any points discussed above and any future independent advice regarding your own financial planning, please do contact us on 01626 833225 or email [email protected]
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